Indian and Global Equity Market Meltdown Could Continue

Investors are eagerly waiting for Indian and Global Equity Markets to stabilize and recover. Lets try to analyse looking at the global fundamentals.

The Dow Jones Industrial Average that had hit a fresh all-time high, recently erased all of its gains for the year as it is now down more than 600 points.

In Australia the benchmark ASX200 declined by 164 points or 2.8% after suffering its fifth straight day of losses.

In Japan the Nikkei had fallen 3.2% and has now fallen around 13% from a 27-year peak of 24,448.07 touched in early October.

The MSCI Asia Pacific index has declined by 20.3% from the year-to-date high, which hit on 29 January. This represents an official bear market for Asia.

South Korea’s equity market have entered a bear market after growth in the third quarter came in at a lower-than-expected 2%. Britain’s FTSE 100 has fallen to a seven-month low at 6885.

As a result in India, Foreign portfolio investors have sold shares worth of over Rs 21,000 crore in October so far. This is followed by Rs 10,824 crore outflows in September 2018.

Various reasons are there for this meltdown, this includes rising bond U.S. bond yields, a more cautious looking U.S. Federal Reserve regarding higher interest rates, high oil prices, slowing Chinese growth, a strong U.S. dollar and rising production and materials costs and relatively new tariffs.

Billions of dollars are, and will be, coming into United States coffers because of Tariffs. Great also for negotiations – if a country won’t give us a fair Trade Deal, we will institute Tariffs on them. Used or not, jobs and businesses will be created. U.S. respected again!

— Donald J. Trump (@realDonaldTrump) October 23, 2018

Profit Margins can be affected

Due to rising production and materials costs and relatively new tariffs, the profit margins can be affected. The company as result will pass the rise in costs to the customers.

The CBOE Volatility Index, is at 25, which is the highest it’s been since the market boomed earlier this year. Seven out of eleven sectors of the S&P 500 are now in correction mode, as they have declined by 10 percent or more since their most recent highs.

High Interest Rate

Federal Reserve has already raised its benchmark rate three times this year and is expected to hike one more time in December. This will affect the consumer willingness to borrow.

As a result, Bank stocks have fallen this year on worries about the rise in lending. New home sales in September have fallen by 5.5 percent to a two-year low, and auto dealers have reported their sales are down.

Slowdown in China’s economy

China, the world’s second biggest economy, is showing slowdown with respect to economy’s growth. It has recently reported economic growth of 6.5 percent in the third quarter, which is lower than the analysts’ expectations.

Further, China is facing trade dispute with the U.S. The U.S. dollar is strong compared to China’s yuan and other foreign currencies, which has made American goods more expensive and affecting lot of economies

India is having a ripple effect of the slow down in global equity market. Further, the rupee is down with respect to dollar and high oil prices are affecting the economy.

In US midterm elections are approaching and the market is factoring in the fear of an overhaul of Congress. Though fundamentally US is in strong position with unemployment at decades-old lows with businesses and consumers are showing confidence.